Seven years is the key period when assessing whether a client requires a decumulation strategy, according to new research from Brooks Macdonald and The Verve Group.
The Retirement Income whitepaper looks at how regulations on retirement decumulation advising services are evolving. Its objective is to support financial advisory companies in putting the FCA’s guidelines on Central Retirement Propositions (CRPs) into practice by providing a useful, sequential framework and criteria for evaluating successful client outcomes.
It found that the critical period to determine if a client needs a decumulation strategy is seven years. If withdrawals are needed prior to this, an alternative investment strategy to the accumulation strategy is required. According to the paper, the idea that lower-risk investments should result from shorter-term requirements is a prevalent misperception regarding this method.
The FCA’s main concerns are with decumulation advice and the ongoing services review, which emphasises the necessity for advisers to set up strong procedures to handle possible harm in accordance with the Consumer Duty.
Data management, management information (MI), record-keeping, and due diligence in creating proposals that are customised for clients are the main concerns facing advisory businesses.
According to the paper, firms need to prioritise thorough documenting of all advice and streamline integration into client reporting documents in light of the new standards.
Brooks Macdonald senior investment director and head of Wales and the Southwest Andrew Lewis says: “The evolution of the UK retirement market brings new opportunities and challenges for advisers to consider as they help clients achieve their retirement objectives.
“Now, mounting regulatory pressure, driven by the thematic review on Retirement Income Advice, demands a more considered, data-led evaluation of decumulation advice. Our whitepaper is designed to equip advisers with the right tools and framework to mitigate risks that clients face when approaching or during the decumulation stage of their investment journey.”
The Verve Group head of adviser support Christian Markwick says: “The fundamental difference in the stages of a client’s life and post-retirement require different forms of advice and processes for firms to follow.
“A CRP is far more than just a firm’s investment-based offerings – it covers a whole magnitude of areas from target market, advice process, service proposition, MI, the technology used, and considerations for how risk is assessed and managed. With this whitepaper, we aim to share some insight into how firms should look to approach associated challenges and ultimately arrive at a proposition that best meets the needs of their clients”.